OIR Rule Development Report: Junior Loan Rates for Title Insurance

Date Published: 04-08-2009

On April 1, 2009, the Florida Office of Insurance Regulation ("OIR") held a Rule Development Workshop on Proposed Rule 69O-186.003,.005 F.A.C. pertaining to Junior Loan Rates for Title Insurance. To view the meeting notice, click here.

The Workshop was held because Investors Title Insurance Company ("ITI") had filed a Petition to initiate rulemaking for the establishment of a Rule and rate for the America Land Title Association ("ALTA") Residential Limited Coverage Junior Loan Policy with Florida modifications. In its petition, ITI noted that the forms associated with this product have been promulgated by the OIR, but that a rate has not yet been established.

Specifically, the Workshop was held to give interested parties the opportunity to comment in regards to the specific rate requests contained in the Petition.

Mark Ito of the OIR presided over the Workshop. Also in attendance were OIR General Counsel Steve Parton, and OIR Title Insurance Regulator Peter Rice.

ITI's petition set forth that:

"(The) Final Order of Case No. 07-5387RP revealed inadequacies in the previous rulemaking process. It is requested that the rulemaking process be re-initiated, taking into consideration the findings of the Final Order.

It is suggested that the premium for this product be no less than $2.00 per thousand with a minimum premium of $150. As established in the Final Order, such a rate would sufficiently cover the anticipated costs of the primary title services incurred by an agent based on the agent's 70% share of the premium. A rate of $2.00 per thousand would also provide the title insurer with adequate, but not excessive, funds to cover the requirements of the guaranty fund and premium tax from the underwriter's 30% retention. Until sufficient data is collected regarding losses specific to this product, perspective loss experience will be inadequately addressed. This limitation should be eliminated by the enforcement of the review of the premium at least once every three years as required by Subsection 627.782(7), Florida Statutes, in conjunction with the statistical gathering mandated by Florida Admin. Code 69O-186.013."

After Eva Searle from ITI presented the company's Petition, Mr. Parton questioned the specific requests contained within it, as well as whether Ms. Searle had an actuarial justification for the rate requested. Ms. Searle explained that although there was no actuarial justification, ITI determined the rate request by looking through the case cited in the Petition and used the judge's calculations. Ms. Searle explained that ITI has an agency in Florida that would like to write this product, which it already writes in Michigan, North Carolina and Nebraska, and that this agency has estimated that it could write about 12,000 of these policies in Florida each year.

Mr. Parton was unsatisfied with the explanation by Ms. Searle and asked about the comparable North Carolina rate for this product. Ms. Searle reported that the North Carolina rate is $45 for up to $100,000 of coverage, $100 for $100,000 to $250,000 of coverage, and $135 for $250,000 to $500,000 of coverage, at which point it is capped.

Ms. Searle sought to justify the more expensive rate requested in her petition ($150) by explaining that the additional rate would satisfy agents' commissions, which, she said, would have to be large because it is difficult to convince them to agree to a lower commission split.

In response to this suggestion, Mr. Parton asked for a comparable example of a commission split amount. Using the 60/40 North Carolina premium split as an example, Ms. Searle said that ITI does not believe agents will sell the product in Florida for that split amount.

Mr. Parton also asked Ms. Searle why ITI did not file for a deviation from the standard rate and proceed in Florida under that authority, to which Ms. Searle responded that ITI was unfamiliar with the rules and procedures in the State.

After questioning Ms. Searle, Mr. Parton stated that the OIR was unsure if it will continue to allow this product because of uncertainty about whether it actually can be considered to be title insurance. He further added that the "OIR really needs to think about whether we go forward with this product from here."

There were no further comments or questions from those in attendance.

At the close of the Workshop, a representative of Fidelity Financial requested that the record be left open for 30 days, which was granted.

Please note that the material above is a brief summary of the discussion and events that took place during the Rule Development Workshop. It is not intended to be a comprehensive review of any particular matters relating to the policies and/or issues discussed. Further, this report should not be relied upon for making any specific decisions. Should you have any questions about any of the above matters, please contact Colodny, Fass, Talenfeld, Karlinsky & Abate. We will continue to follow this, and other issues related to actions taken by the Florida Office of Insurance Regulation, and provide information on, and analysis of, these issues and events as they arise.

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